Does Shell Midstream Partners LP (NYSE:SHLX) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.
Is Shell Midstream Partners LP (NYSE:SHLX) the right pick for your portfolio? The best stock pickers are becoming less hopeful. The number of bullish hedge fund positions shrunk by 1 recently. Our calculations also showed that SHLX isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the latest hedge fund action regarding Shell Midstream Partners LP (NYSE:SHLX).
Hedge fund activity in Shell Midstream Partners LP (NYSE:SHLX)
At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in SHLX over the last 13 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Shell Midstream Partners LP (NYSE:SHLX) was held by Zimmer Partners, which reported holding $10.7 million worth of stock at the end of September. It was followed by BP Capital with a $6 million position. Other investors bullish on the company included Citadel Investment Group, PEAK6 Capital Management, and Lucas Capital Management.
Judging by the fact that Shell Midstream Partners LP (NYSE:SHLX) has experienced a decline in interest from the smart money, it's easy to see that there exists a select few money managers who were dropping their positions entirely heading into Q3. Interestingly, George Hall's Clinton Group said goodbye to the largest stake of the 700 funds monitored by Insider Monkey, comprising an estimated $1 million in call options, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dropped about $0.6 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds heading into Q3.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Shell Midstream Partners LP (NYSE:SHLX) but similarly valued. These stocks are Wintrust Financial Corporation (NASDAQ:WTFC), Air Lease Corp (NYSE:AL), Conduent Incorporated (NYSE:CNDT), and 51job, Inc. (NASDAQ:JOBS). All of these stocks' market caps are closest to SHLX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTFC,24,509242,7 AL,27,427583,3 CNDT,34,1156262,2 JOBS,14,45623,2 Average,24.75,534678,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $24 million in SHLX's case. Conduent Incorporated (NYSE:CNDT) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Shell Midstream Partners LP (NYSE:SHLX) is even less popular than JOBS. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.